Export Controls – American Trade & Manufacturing Bloghttps://www.ustradeblog.com
International trade developments affecting U.S. manufacturers, producers and service industriesFri, 24 May 2019 15:31:57 +0000en-UShourly1https://wordpress.org/?v=4.9.10The Crisis in Venezuela – New Sanctions Forthcoming?https://www.ustradeblog.com/2019/01/the-crisis-in-venezuela-new-sanctions-forthcoming/
Fri, 25 Jan 2019 13:50:56 +0000https://www.ustradeblog.com/?p=1826Continue Reading]]>On January 23, 2019, the leader of Venezuela’s National Assembly, Juan Guaidó, declared himself the acting President of Venezuela and announced he would assume the powers of the Venezuelan executive branch until new national elections are held. The move was a direct challenge to Venezuela’s sitting president, Nicolás Maduro, who was reelected to a second term in a widely denounced, allegedly rigged election last year. Several countries across the Americas, including, most notably, the United States, have recognized Mr. Guaidó as the legitimate Venezuelan President. As Vice President Mike Pence explained in an op-ed, “[t]his is a humanitarian crisis and also a matter of regional security.” He added, “[f]or the sake of [U.S.] vital interests, and for the sake of the Venezuelan people, the U.S. will not stand by as Venezuela crumbles.”

U.S. companies doing business in Venezuela should exercise caution, as reports indicate that new U.S. economic sanctions against Venezuela could be forthcoming. Current U.S. sanctions do not prohibit doing business in Venezuela or with the Venezuelan government, but instead focus on certain financial transactions involving the Venezuelan government and certain sanctioned individuals and companies, including those operating in the gold sector as well as Venezuelan government officials. With certain exceptions, current financial restrictions prohibit U.S. persons from engaging in transactions related to, the provision of financing for, or other dealings in certain new debt involving the Venezuelan government, including government-owned or -controlled entities such as Petróleos de Venezuela, S.A. (PdVSA); bonds issued by or dividend payments or other distributions of profits to the Venezuelan government; purchases of securities from or any debt owed to the Venezuelan government; any digital currency/coin/token issued by, for, or on behalf of the Venezuelan government; any debt owed to the Venezuelan government that is pledged as collateral on or after May 21, 2018; and any sale, transfer, assignment, or pledging as collateral by the Venezuelan government of any equity interest in any entity 50% or more owned by the Venezuelan government. In addition, U.S. persons are prohibited from engaging in transactions with any designated individuals/entities, and must ensure that any dealings with the Venezuelan government do not involve, directly or indirectly, any designated Venezuelan government officials.

While it appears that the U.S. government has been considering increasing sanctions against Venezuela for some time now, the current crisis in the country increases the likelihood that new sanctions will be imposed relatively soon. Reports indicate that the U.S. government is considering increased sanctions on the Venezuelan oil and gold sectors, as well as other sanctions, if Mr. Maduro resorts to force against his opponents. Any new sanctions targeting the oil sector, including PdVSA, could potentially include restrictions on Venezuelan oil import volumes or even a full ban on U.S. imports of Venezuelan oil. Other options could include sanctions against the Venezuelan military (assuming they remain under Mr. Maduro’s control) and the designation of additional Venezuelan government officials/entities. As one government official told the Wall Street Journal, all options are on the table.

Given the fluid situation in Venezuela, we expect that any new sanctions would go into effect quickly, as the Trump Administration seeks to facilitate a rapid end to the current crisis. U.S. companies operating in Venezuela, particularly in the oil sector, would thus be well advised to proceed with caution on any new transactions involving the Venezuelan government.

Jonathan Babcock, a Law Clerk in Wiley Rein’s International Trade practice, contributed to this post.

]]>BIS Announces Good News for India, Bad News for South Sudan on Export Controls Fronthttps://www.ustradeblog.com/2018/08/bis-announces-good-news-for-india-bad-news-for-south-sudan-on-export-controls-front/
Mon, 06 Aug 2018 13:37:30 +0000https://www.ustradeblog.com/?p=1785Continue Reading]]>Does your company export products or technology to India or South Sudan? If so, last Friday, the Commerce Department’s Bureau of Industry and Security (BIS) made changes to the export controls on these countries that may impact your operations, particularly if your company exports “600 series” military commodities, software, or technology or satellite-related items.

First, recognizing India’s membership in three out of four multilateral export control regimes and its status as a Major Defense Partner of the United States, BIS added India to Country Group A:5 in the Export Administration Regulations (EAR)—the list of close U.S. allies granted favorable export status. A key benefit of being an A:5 country is that U.S. companies can now use License Exception STA to export “600 series” military items as well as satellite-related items to India without the need to apply for a specific license. BIS also formally recognized India’s membership in the Wassenaar Arrangement, added India to Country Group A:1, and removed license requirements for EAR items controlled for National Security Column 2 reasons.

On the flip side, BIS also updated the EAR to add South Sudan to Country Group D:5—the list of countries that are subject to arms embargoes. This change is designed to ensure that the EAR’s D:5 list mirrors the State Department’s list of Section 126.1 prohibited countries in the International Traffic in Arms Regulations, to which South Sudan was added earlier this year. Although the amendment is mostly a formality, as the D:5 list includes a note stating that State’s Section 126.1 prohibited countries list is controlling, BIS’s rule serves to put exporters on notice of South Sudan’s new status. One important impact of the arms embargo designation is that exports to South Sudan of satellite-related items and “600 series” military items are subject to a general policy of denial, except for certain types of transactions, such as exports in support of peacekeeping and humanitarian operations. The D:5 designation also limits the ability of foreign companies utilizing U.S. “600 series” (or satellite-related) parts or components from shipping their end products incorporating such parts or components to South Sudan.

]]>BIS Adds 44 Chinese Entities and Institutions to its Entity Listhttps://www.ustradeblog.com/2018/08/bis-adds-44-chinese-entities-and-institutions-to-its-entity-list/
Mon, 06 Aug 2018 13:35:47 +0000https://www.ustradeblog.com/?p=1783Continue Reading]]>Last week, the Department of Commerce’s Bureau of Industry and Security (BIS) added eight Chinese entities and 36 subordinate institutions to its Entity List, ratcheting up tensions with China and reflecting the administration’s crackdown on U.S. exports that officials believe are being used to strengthen the Chinese military.

Historically, companies often are added to BIS’s Entity List for engaging in activities related to proliferation of weapons of mass destruction. Here, some of the newly designated entities—including China Electronic Technology Group Corporation (CETC) 13 and some of its subordinate institutions—were added due to their alleged illicit procurement of U.S. commodities and technologies for unauthorized military end-uses in China. The remaining entities—including China Aerospace Science and Industry Corporation (CASIC) Second Academy and some of its subordinate institutions—were added to the Entity List based on a risk of diversion of items to military end-uses in China.

The new restrictions prohibit exports, reexports, and transfers (in-country) of any items subject to the U.S. Export Administration Regulations (EAR) to the newly-designated entities, along with any other transaction in which these entities act as a purchaser, intermediate consignee, ultimate consignee, or end-user of items subject to the EAR. In other words, even common, off-the-shelf EAR99 and mass market hardware, software, and technology cannot be provided to these 44 Chinese entities/institutions without U.S. government authorization. Further, export licenses are subject to a policy of denial, and no EAR license exceptions can be used for transactions with the designated entities.

This action is notable because it is part of much larger U.S.-China trade tensions. It also reveals the administration’s concerns regarding China’s use of commercial and dual-use U.S. items for military purposes, including not only proliferation of weapons of mass destruction but also conventional military applications. U.S. companies should brace for more restrictions on trade with China, as the President is expected to sign legislation this month that may be used to impose additional export controls on China/Chinese entities, including on the provision of “emerging and foundational technologies” as well as items for military end-users/end-uses.

]]>Proposed Shift for Small Arms Export Controls from State Department to Commerce Department Authorityhttps://www.ustradeblog.com/2018/05/proposed-shift-for-small-arms-export-controls-from-state-department-to-commerce-department-authority/
Wed, 16 May 2018 16:38:11 +0000https://www.ustradeblog.com/?p=1753Continue Reading]]>Yesterday, the Trump Administration announced a plan to transfer control over the export of small arms from the U.S. Department of State’s International Traffic in Arms Regulations (ITAR) to the typically less-stringent U.S. Department of Commerce’s Export Administration Regulations (EAR). The shift will affect U.S. small arms exports, including non-automatic and semi-automatic firearms up to .50 caliber, non-automatic and non-semi-automatic rifles and other weapons up to .72 caliber, and some ammunition, as well as certain gun parts and components.

The departments of Commerce and State detailed the plan to members of Congress during a confidential briefing on May 15. Agency officials explained that the regulatory burden associated with small arms exports would decrease as a result of the export controls shift, which is intended to promote American exports. For example, manufacturers and exporters of items shifted to EAR control will no longer be required to register annually with the State Department or pay an annual registration fee.

The State Department will retain control under the ITAR over military-grade weapons and other weapons systems that typically are not commercially available to the public, such as in sporting goods stores, as well as gun silencers and large component parts for fully automatic weapons.

The proposed rule from the Commerce Department regarding the transfer of authority is available here and the State Department’s proposed rule is available here. Once the proposed rule is published in the Federal Register, interested parties will have 45 days to submit comments to the agencies. The export controls changes will not be effective unless and until a final rule is published.

]]>U.S. Ratchets Up Venezuela Sanctions, Targets Digital Currencyhttps://www.ustradeblog.com/2018/03/u-s-ratchets-up-venezuela-sanctions-targets-digital-currency/
Tue, 20 Mar 2018 13:05:10 +0000https://www.ustradeblog.com/?p=1729Continue Reading]]>The Trump administration issued a new Executive Order (EO) yesterday prohibiting all transactions related to and other dealings in any digital currency, digital coin, or digital token issued by, for, or on behalf of the Government of Venezuela after January 9, 2018.

The U.S. government previously imposed targeted restrictions on dealings in new debt, new equity, bonds, dividend payments/distributions of profits, and securities involving the Government of Venezuela, including agencies or instrumentalities thereof (e.g., Petroleos de Venezuela, S.A.). The latest move to ban U.S. trade in Venezuelan government digital currencies is in response to President Nicolas Maduro’s pronouncements regarding the issuance of the petro (a digital currency backed by oil) and petro gold (a digital currency backed by precious metals) as means to avoid U.S. financial sanctions. U.S. persons who participated in a pre-sale for covered Government of Venezuela-issued digital currency are out of luck and now require U.S. government authorization to sell, trade, or use such currency.

Concurrently with the EO, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) also issued broader guidance on virtual currency. The agency reminded U.S. persons that their compliance obligations for transactions involving digital currency—which the agency defines as sovereign cryptocurrency, virtual currency (non-fiat), and a digital representation of fiat currency—are the same as those for transactions denominated in traditional fiat currency. In other words, regardless of the currency involved, U.S. persons are required to ensure that they do not engage in unauthorized transactions, such as dealings with individuals or entities on OFAC’s Specially Designated Nationals (SDN) List or entities 50% or more owned by SDNs. This requires digital currency users, technology companies, and payment processors to adopt risk-based compliance measures, including screening against U.S. government sanctions lists. To aid the digital currency community, OFAC stated that it may add digital currency addresses to its SDN List, although it warned that the address listings likely will not be exhaustive, placing the onus on U.S. companies and individuals to conduct due diligence to make sure that they are not engaging in prohibited transactions.

]]>OFAC Sanctions Russians for Election Interference and Malicious Cyberattackshttps://www.ustradeblog.com/2018/03/ofac-sanctions-russians-for-election-interference-and-malicious-cyberattacks/
Fri, 16 Mar 2018 18:57:57 +0000https://www.ustradeblog.com/?p=1727Continue Reading]]>Yesterday, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated several Russian individuals and entities as Specially Designated Nationals (SDNs) pursuant to the Countering America’s Adversaries Through Sanctions Act of 2017 (CAATSA) and a cyber-related Executive Order. The new sanctions are retaliation for Russia’s interference in the most recent presidential election as well as cyberattacks linked to Russia, including the NotPetya cyberattack and other intrusions targeting U.S. government entities and critical U.S. infrastructure.

Many of the newly designated persons also have been charged by Special Counsel Robert Mueller for crimes related to the 2016 presidential election. One such entity—the Internet Research Agency—allegedly was founded for the specific purpose of meddling in the U.S. election. This entity allegedly created fictitious online users posing as Americans and infiltrated social media sites. Other designees, including Russia’s Federal Security Service and its Main Intelligence Directorate, were already subject to U.S. sanctions broadly prohibiting most dealings with these entities.

This marks the first major action the Trump administration has taken against Russia to address election interference. And, there may be more to come. Earlier this year, the administration submitted a report to Congress, as required under CAATSA, identifying Russian oligarchs, senior political figures, and parastatal entities. The report itself is not a sanctions list, although it potentially could serve as a starting point for additional Russian designations.

]]>State Department Adds South Sudan to the ITAR’s “Prohibited Countries” Listhttps://www.ustradeblog.com/2018/02/state-department-adds-south-sudan-to-the-itars-prohibited-countries-list/
Wed, 14 Feb 2018 21:52:23 +0000https://www.ustradeblog.com/?p=1725Continue Reading]]>The U.S. Department of State today issued an amendment to the International Traffic in Arms Regulations (ITAR) to include South Sudan in its regulations on prohibited exports, imports, and sales to and from certain countries, and to update its defense trade policy toward South Sudan by applying a policy of denial on the export of defense articles and defense services to South Sudan. The action follows a February 2 press release from the State Department announcing this intended action, which noted the continuing violence in South Sudan and discussed the extent of the humanitarian crisis in the country.

South Sudan now joins countries including Afghanistan, Belarus, Burma, China, the Central African Republic, Cuba, Cyprus, the Democratic Republic of Congo, Eritrea, Haiti, Iran, Iraq, Lebanon, Libya, North Korea, Somalia, Syria, Venezuela and Zimbabwe, as well as the separate country of Sudan, on the ITAR’s list of section 126.1 “prohibited countries.”

There are certain exceptions to the State Department’s policy of denial for export licenses to South Sudan. Licenses or other approvals may be issued, on a case-by-case basis, for:

(2) Defense articles and defense services intended solely for the support of, or use by, African Union Regional Task Force (AU–RTF) or United Nations entities operating in South Sudan;

(3) Defense articles and defense services intended solely for the support of or use by non-governmental organizations in furtherance of conventional weapons destruction or humanitarian demining activities;

(5) Personal protective equipment temporarily exported to South Sudan by certain United Nations personnel, human rights monitors, media representatives, and humanitarian and development workers, for personal use; or

(6) Any defense articles and defense services provided in support of implementation of the Comprehensive Peace Agreement, the Agreement on the Resolution of the Conflict in the Republic of South Sudan, or any successor agreement.

For more information, please contact Dan or Laura.

]]>State Department Adds South Sudan to List of Prohibited Countrieshttps://www.ustradeblog.com/2018/02/state-department-adds-south-sudan-to-list-of-prohibited-countries/
Mon, 05 Feb 2018 14:14:33 +0000https://www.ustradeblog.com/?p=1723Continue Reading]]>Last week, the Department of State’s Directorate of Defense Trade Controls (DDTC) announced that it has added South Sudan to its list of prohibited countries under the U.S. International Traffic in Arms Regulations (ITAR). This designation means that with certain limited exceptions, export licenses for ITAR-controlled munitions items and related services are now subject to a policy of denial, and most ITAR exemptions no longer can be used for South Sudan.

Additionally, no proposals or presentations related to ITAR-controlled items, regardless of whether or not such proposals or presentations contain ITAR technical data, may be made to South Sudan or to any person acting on its behalf without first obtaining a license or written approval from DDTC. Exporters also have a duty to immediately notify DDTC if they know or have reason to know of a proposed, final, or actual sale, export, transfer, reexport, or retransfer of ITAR-controlled items to South Sudan or another Section 126.1 ITAR-prohibited country. At present, the other ITAR-prohibited countries include: Afghanistan, Belarus, Burma (Myanmar), the Central African Republic, China, Cuba, Cyprus, Democratic Republic of the Congo (DRC), Eritrea, Haiti, Iran, Iraq, Lebanon, Libya, North Korea, Somalia, the Republic of the Sudan, Syria, Venezuela, and Zimbabwe.

]]>BIS Publishes Rule Implementing 2016 Wassenaar Plenary Meeting Changeshttps://www.ustradeblog.com/2017/08/bis-publishes-rule-implementing-2016-wassenaar-plenary-meeting-changes/
Mon, 21 Aug 2017 14:16:04 +0000http://www.ustradeblog.com/?p=1676Continue Reading]]>On August 15, 2017, the Department of Commerce’s Bureau of Industry and Security (BIS) published a final rule amending the Export Administration Regulations (EAR) to implement changes agreed to by member states of the Wassenaar Arrangement in their December 2016 Plenary meeting. These changes are designed to prevent destabilizing arms trade, while also ensuring that U.S. companies are competing on a level playing field with their competitors in other Wassenaar countries.

The Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies is a group of like-minded countries committed to promoting responsibility and ensuring effective export controls on strategic items to improve regional and international security and stability. BIS’s new rule implements changes from last year’s Plenary meeting by revising 50 Export Control Classification Number (ECCN) entries and expanding license exception eligibility for certain items. In many cases, the amendments are intended to recognize advances in technology, such as by raising the adjusted peak performance (APP) for digital computers controlled by ECCN 4A003 to track improvements in microprocessor technology (i.e., Moore’s Law).

Among other changes, BIS also revised its encryption controls again. The agency formally removed “Note 4,” which excludes from U.S. encryption controls items with ancillary cryptography, such as a vending machine that sends encrypted communications to report that it has run out of soft drinks. Note 4 had been written in the negative, meaning that this exclusion from the encryption controls applied to items where the primary function was not information security, computing, communications, or networking. In an effort to help clear up confusion among exporters, BIS replaced Note 4 with positive text in ECCN 5A002.a that specifies the items subject to control. From a practical standpoint, BIS indicated that the scope of control (and the formerly titled “Note 4” exclusion) remains the same, with one notable exception. In this connection, BIS added language to release from the encryption controls items where the encryption supports a non-primary function of the item (e.g., an automobile with a built-in mobile telephone), but the stand-alone encryption equipment (here, the mobile telephone) is not controlled by ECCN 5A002 (here, the phone is a mass market item controlled by ECCN 5A992.c).

Considering the scope of BIS’s changes and the large number of ECCNs impacted by such changes, exporters are encouraged to review the revisions that could impact their current product and technology classifications.

]]>Commerce Updates its Encryption Guidance to Reflect September 2016 Regulatory Changeshttps://www.ustradeblog.com/2017/05/commerce-updates-its-encryption-guidance-to-reflect-september-2016-regulatory-changes/
Tue, 30 May 2017 13:06:16 +0000http://www.ustradeblog.com/?p=1648Continue Reading]]>The Department of Commerce, Bureau of Industry and Security (BIS) recently updated the encryption guidance on its website to reflect the final rule it published in September 2016 easing the encryption-related controls in the Export Administration Regulations (EAR). Although BIS’s revamped guidance is not groundbreaking, it does provide industry with much-needed tools to navigate a somewhat complex area of the EAR.

BIS’s September 2016 rule simplified its encryption controls, expanded existing license exceptions, and loosened other restrictions, easing the regulatory burdens on industry. However, BIS only just revised the oft-relied upon encryption guidance on its website to correspond to the current controls. The new web guidance includes a quick reference guide to the updated encryption controls, as well as a new, shorter version of BIS’s encryption-related Frequently Asked Questions. Perhaps most importantly, BIS has modified its famous encryption “flow charts,” which walk exporters step-by-step through the encryption classification process.

BIS’s updated encryption guidance is one of many user and business friendly resources on the agency’s website. Additional helpful policy guidance is available here.